Brookfield Infrastructure(NYSE: BIPC)(NYSE: BIP) recently held its annual investor day. The global infrastructure company highlighted at the event that its top priority is to create value for investors.
It has certainly done that over the years. For example, an investor who purchased 100 shares at its inception 15 years ago (a $1,900 initial investment) would now own 225 limited partnership units of Brookfield Infrastructure Partners (BIP) worth over $7,600 and another 25 shares of Brookfield Infrastructure Corporation (BIPC) valued at over $1,060. They would have also received nearly $3,940 in cash distributions (thanks to its magnificent 9% compound annual dividend growth rate). Add it all up, and Brookfield has delivered a 6.6x return for investors since its formation a decade and a half ago.
The company is in an excellent position to continue enriching its investors in the future. Here's a look at the three pathways it pursues to create value for its investors.
1. Embedded organic growth
Brookfield Infrastructure invests capital to expand its global infrastructure operations. The company currently has $8 billion of secured growth capital projects across its four operating segments (utilities, transport, midstream, and data). Meanwhile, its potential backlog is up to $12 billion.
Its data segment currently represents the largestportion of its backlog at $5.5 billion. The biggest project is investing $3.9 billion of equity toward the construction of two semiconductor fabrication facilities in the U.S. with Intel. It's also investing $1.2 billion to expand its global data center platform. These investments position it to participate in the tremendous growth ahead for semiconductors and data center capacity driven by AI. That technology uses 5x the semiconductor chip power of non-AI workloads and could drive a 3x increase in data center capacity growth by 2030.
2. Tuck-in and follow-on investments
Brookfield Infrastructure also expands its earnings from existing businesses by making follow-on investments to increase its interest in those businesses and making tuck-in acquisitions to expand them. For example, in 2013, the company and its partners bought a 27% interest in a Brazilian rail and port logistics business, VLI, with Brookfield investing $350 million into the $850 million deal. It capitalized on the opportunity to buy an incremental 10% stake in that business for $365 million this year at a more than 20% discount to its fair value estimate of the business. That investment will give it a larger share of the cash flows that the business produces while improving its governance since it's now the largest shareholder.
Brookfield has also made two tuck-in acquisitions this year. It acquired 40 data center sites out of bankruptcy from Cyxtera while also buying the associated real estate of several sites from third-party landlords to expand its U.S. retail colocation data center platform. It initially formed that platform in 2018 when it bought several data centers from AT&T. The company also purchased a portfolio of telecom towers in India from American Tower to expand its platform in that country. This trio of follow-on and tuck-in deals will add about $150 million to its annual FFO (funds from operations).
2. Mergers and acquisitions
Brookfield's third growth avenue is accretive M&A. It will acquire expandable platforms when compelling opportunities arise.
For example, it participated in the privatization of Triton International last year. Brookfield Infrastructure invested $1.2 billion for a 28% interest in the global intermodal logistics operation. The company expects that investment to generate strong returns with the opportunity to expand its fleet in the future.
The company expects the latter part of this year to be active for M&A due to the improving interest rate environment. Meanwhile, the long-term M&A outlook is also robust because of the tremendous need for capital to fund growth across several industries. It sees potential opportunities to buy assets from corporations needing capital (like its purchase of data centers from AT&T a few years ago). It also sees the potential to buy businesses that don't have enough internal capital to fund their growth, like electric and gas utilities.
An enriching investment
Brookfield Infrastructure expects its trio of drivers will grow its FFO per share at a more than 10% annual rate. That should give it the fuel to increase its dividend by 5% to 9% per year. With its payout already yielding nearly 4%, the company could deliver an average annualized total return in the mid-teens. That positions Brookfield to continue delivering on its top priority of growing wealth for its investors.
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Matt DiLallo has positions in American Tower, Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, and Intel and has the following options: long January 2025 $30 calls on Intel, long January 2026 $170 calls on American Tower, short January 2025 $30 puts on Intel, short January 2026 $175 calls on American Tower, short November 2024 $45 calls on Intel, and short October 2024 $45 calls on Intel. The Motley Fool has positions in and recommends American Tower. The Motley Fool recommends Brookfield Infrastructure Partners and Intel and recommends the following options: long January 2026 $180 calls on American Tower, short January 2026 $185 calls on American Tower, and short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
